2021 (1) TMI 225 - AT - Income Tax

Revision u/ 263 - assessee s claim for exemption of LTCG u/s 10(38) not verified by AO - HELD THAT - A.O had failed to verify the genuineness and correctness of the aforesaid share transactions and had rather summarily accepted the assessee s claim for exemption of LTCG under Sec.10(38), therefore, the Pr. CIT remaining well within the realm of his jurisdiction as contemplated in the Explanation 2(a) to Sec. 263 of the Act had rightly set aside the assessment order with a direction to the A.O to frame the same afresh after affording an opportunity of being heard to the assessee. At this stage, we may herein observe that the Pr.CIT while directing as hereinabove, had however, inadvertently directed the A.O to disallow the assessee s claim of exemption of LTCG under Sec. 10(38) of the Act. As the aforesaid direction of the Pr. CIT clearly militates against his direction to the A.O to pass a fresh assessment order in accordance with law after affording an opportunity of being heard to the assessee, therefore, to the said extent the same cannot be sustained and is expunged from the impugned order. We herein uphold the order passed by the Pr.CIT under Sec. 263 though subject to the modification stated hereinabove.

Issues Involved:
1. Whether the Principal Commissioner of Income Tax (Pr. CIT) erred in setting aside the order of the Assessing Officer (AO) under Sec. 143(3) and directing the AO to pass a fresh assessment order.
2. Whether the Pr. CIT's directions to disallow the exemption of ?58,56,466/- under Sec. 10(38) were contradictory.
3. Whether the Pr. CIT erred in finding that the appellant voluntarily disclosed income in the previous year without appreciating the difference in the scrips involved.
4. Whether the AO's order was erroneous and prejudicial to the interest of the revenue due to lack of verification of the taxability of LTCG on the sale of shares.
5. Whether the AO failed to verify the genuineness of the share transactions despite the lack of allegations by SEBI or the Income Tax investigation wing.

Issue-wise Detailed Analysis:

1. Setting Aside the AO's Order:
The Pr. CIT observed that the AO accepted the assessee's claim for exemption under Sec. 10(38) without verifying the genuineness of the purchase/sale transactions of shares. The Pr. CIT issued a 'Show Cause' notice to the assessee, who claimed that all necessary documents were provided during the assessment. However, the Pr. CIT found that the AO did not perform adequate verification, rendering the assessment order erroneous and prejudicial to the revenue's interest. Consequently, the Pr. CIT set aside the AO's order and directed a fresh assessment.

2. Contradictory Directions:
The Pr. CIT's order contained a contradiction by directing the AO to both pass a fresh assessment and disallow the exemption of ?58,56,466/- under Sec. 10(38). The Tribunal found this direction contradictory and expunged the part of the order that directed the AO to disallow the exemption, while upholding the rest of the order.

3. Voluntary Disclosure in Previous Year:
The Pr. CIT noted that the assessee had voluntarily disclosed LTCG in the previous year, which the assessee argued was related to different shares (Unisys Software) and not the shares in question (Nyssacorp). The Tribunal agreed that the Pr. CIT's reference to the previous year's disclosure was to emphasize the need for careful verification by the AO, considering the assessee's past conduct.

4. Erroneous and Prejudicial Order:
The Tribunal found that the AO did not query or verify the genuineness of the share transactions during the assessment proceedings. This lack of verification justified the Pr. CIT's invocation of Sec. 263, as the AO's failure rendered the assessment order erroneous and prejudicial to the revenue's interest.

5. Verification of Share Transactions:
The Tribunal noted that the AO did not verify the genuineness of the share transactions despite the absence of allegations from SEBI or the Income Tax investigation wing. The Tribunal upheld the Pr. CIT's direction for a fresh assessment, emphasizing the need for thorough verification of the transactions.

Conclusion:
The Tribunal upheld the Pr. CIT's order under Sec. 263, directing the AO to conduct a fresh assessment after verifying the genuineness of the share transactions. However, it expunged the part of the order that directed the AO to disallow the exemption under Sec. 10(38), finding it contradictory. The appeal was partly allowed, with the delay in filing the appeal condoned due to a justified reason.

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